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Zynga Stock Has a Lot to Prove on Tuesday

The game's afoot for Zynga(NASDAQ: ZNGA). The casual and social gaming giant behind FarmVille, Zynga Poker, and Words With Friends is rolling. The stock is within 2% of revisiting the three-year highs it hit in late September, and a new multiyear high is certainly within reach if Zynga comes through with strong financial results this week.

Zynga reports its quarterly numbers shortly after Tuesday's market close, and it tends to move on earnings. The stock rose a modest 3% the day after posting its second-quarter results in early August. Zynga soared nearly 13% higher the day following its first-quarter announcement three months before that, rising 2.3% the period before that. String the upbeat market reactions together, and you have a stock that could reasonably hit a fresh three-year high in Tuesday afternoon's after-hours trading. You have to go back to the second quarter of last year to find the last time that the stock declined the day after offering up a financial report. However, that 7% slide is a painful reminder that volatility cuts both ways. Momentum is on Zynga's side, but like the fickle nature of its mobile gamers, it's something that can turn in a hurry.

Cover art for Zynga's CSR2 racing game.

Image source: Zynga.

Expectations with friends

Zynga's summertime guidance calls for $7 million in net income, adjusted EBITDA of $30 million, and $210 million in revenue for the third quarter. It sees $205 million in bookings for the period, a sequential dip but a modest 4% increase since the prior year.

Investors may be spoiled after the 20% year-over-year surge in bookings during its blowout second quarter, but it also bears pointing out that Zynga has been conservative in its sneak peeks lately. It was also modeling $205 million in bookings for the second quarter, eventually clocking in at $209.2 million. Zynga was also bracing investors for a tiny deficit, and it came through with a small profit. The period before that, we saw Zynga's bookings guidance of $190 million translate into $207.4 million. It's not a coincidence that the stock has rallied nicely following its two last quarterly outings. The stock's been a market-beater, rising 53% so far in 2017.

Revenue is still a far cry from its 2012 peak, but Zynga has worked hard at the reinvention process. The company that was generating more than $100 million in gross bookings from the FarmVille franchise alone in any quarter back then is now relying more on its social casino games -- as poker and slots account for half of its bookings in its latest quarter -- and a more diversified portfolio of traditional mobile diversions.

Zynga is unlikely to approach its 2011 IPO price of $10 anytime soon, but most investors who have hopped on the stock over the past year are doing well. A strong report pushing the stock to its highest levels since the springtime of 2014 will make sure that all of the stock's recent buyers are doing well.